E-Commerce The Good, The Bad & The Ugly The Good Faster, cheaper and less prone to error Customer centric The Bad Hardware issues…spotted owl disease False sense of organization Initial cost and implementation issues Emerging economy issues…haves and have-nots The Ugly The bad guys and hackers…our focus today
FORENSIC ACCOUNTING - BA124 - 2015
Consider This… The race to 60 million users Radio—30 years TV—15 years
The Internet—3 years to 90 million
users
FORENSIC ACCOUNTING - BA124 - 2015
E-Commerce Fraud Risks P – O – R…see text
FORENSIC ACCOUNTING - BA124 - 2015
E-Commerce Fraud Prevention Difficult to impact pressure and rationalization at this time Lack of personal contact with fraudsters Avoid “iffy” situations and “sketchy” firms Focus on reducing opportunities FORENSIC ACCOUNTING - BA124 - 2015 Prevention in the Opportunity Sector The control environment Integrity and ethics Board and Audit Committee involvement Tone at the Top Human resource policies and practices (training) Risk assessment efforts
Implementation of control activities
FORENSIC ACCOUNTING - BA124 - 2015 Risk Assessment Data theft is the big issue…not cash Sniffing for passwords Unauthorized password access False identification of users Spoofing for headers and “IP” (protocol models) Impersonation of customers False or misleading websites Hijacking to copy-cat websites
FORENSIC ACCOUNTING - BA124 - 2015
Prevention Through Control Activities Separation of duties Authorization techniques Firewalls Passwords Digital signatures Biometrics Documentation and encryption Physical control Independent assessment (operational auditing) On-going not spot-checking FORENSIC ACCOUNTING - BA124 - 2015 E-Commerce Fraud Detection Proactive posture On-going analysis and effort Defending the Digital Frontier, Mark Doll, Sajay Rai and Jose Granado. Ernst & Young, LLP.
FORENSIC ACCOUNTING - BA124 - 2015
Final Shenanigans Cash Flow Shenanigans Metrics Shenanigans
FORENSIC ACCOUNTING - BA124 - 2015
Cash Flow Shenanigans CFS #1: Shifting Financing inflows to Operating inflows CFS #2: Shifting Operating outflows to Investing outflows CFS #3: “Inflating” Operating inflows through normal but infrequent ops CFS #4: “Inflating” Operating inflows through normal operations
FORENSIC ACCOUNTING - BA124 - 2015
CFS #1 Bank borrowings as CFO Sale of receivables as CFO Sham sale of receivables as CFO
FORENSIC ACCOUNTING - BA124 - 2015
CFS #2 Boomerang transactions Capitalization of operating expenses Treating inventory purchases as investing activities
FORENSIC ACCOUNTING - BA124 - 2015
CFS #3 Inheriting cash flows via acquisition Acquisition of customers or products Structuring a divestiture to benefit operating cash flows
FORENSIC ACCOUNTING - BA124 - 2015
CFS #4 Paying vendors more slowly Collecting from customers more quickly Purchasing less inventory Limited disclosure of one-time benefits
FORENSIC ACCOUNTING - BA124 - 2015
Metrics Shenanigans MS #1: Misleading metrics that overstate performance MS #2: Distorting metrics that avoid bad news